5. 27.

Black–Scholes [LO 25.2] A share is currently priced at $50. The share will never pay a dividend. The risk-free rate is 12 per cent per year, compounded continuously, and the standard deviation of the share’s return is 60 per cent. A European call option on the share has a strike price of $100 and no expiration date, meaning that it has an infinite life. Based on Black–Scholes, what is the value of the call option? Do you see a paradox here? Do you see a way out of the paradox?